Stock market today: Three reasons why SENSEX, NIFTY50 jumped for second consecutive session

The NIFTY50 and SENSEX gained nearly 1% on Thursday, March 6, extending Wednesday’s bullish momentum for the second consecutive day.

The NIFTY50 added 207.40 points to 22,544.70 levels, while SENSEX soared 609.87 points to end at 74,340.09. The broader indices outperformed the benchmark indices by a wide margin as they gained more than 1% Thursday after a nearly 2.5% rally on Wednesday.

The market breadth also remained in favour of advances, as 2,207 stocks traded in the green, compared to 716 in the red. Similarly, 258 stocks hit the upper circuit, and 55 hit the lower circuit.

After falling by more than 16% from the record highs, the market has witnessed nearly 2.5 % recovery from the lower levels. Will it sustain?

Sharp fall in the dollar index

The Dollar Index (DXY) is an index or measure of value relative to six foreign currencies: the euro, Japanese yen, British pound, Canadian dollar, Swedish krona, and Swiss franc.

Out of which, the euro, yen, and pound have more than 80% weightage to the dollar. The index compares how weak or strong the dollar is compared to these six currencies and widely tracked parameters to assess the global demand for the dollar.

A higher dollar index means the other global currencies are weaker and vice versa. Currently, the dollar index has fallen from 110 levels to 104 in a less than two-month period.

The sharp fall in the dollar indicates two things. First, the demand for the dollar has fallen compared to other currencies, primarily due to weaker economic indicators in the US, tariff war-led uncertainties, and faster policy rate cuts.

Secondly, the fall in the dollar also impacts the Indian markets positively, as it could slow down FII selling and stem rupee depreciation at current levels.

In the past two trading sessions, FIIs have reduced their pace of selling Indian equities. On the contrary, domestic institutions have bought equities at a much faster pace, taking the Indian markets higher.

RBI’s liquidity boost

The Reserve Bank of India (RBI) has devised more measures, including the purchase of government bonds under open market operations (OMO) and foreign currency swaps, to ease the tight liquidity conditions in the banking system.

The RBI’s decision to inject liquidity into the banking system has been taken on a review of current and evolving liquidity conditions. As part of the measures, the RBI will conduct OMO purchase auctions of Government of India securities for an aggregate amount of ₹1,00,000 crore in two tranches of ₹50,000 crore each to be held on March 12, 2025, and March 18, 2025.

The central bank will also conduct a USD/INR Buy/Sell Swap auction of $10 billion for a tenor of thirty-six months on March 24, 2025. The open market operations and currency swap are expected to increase liquidity in the economy, which faced a deficit of ₹0.65 lakh crore as of December 2024 compared to a surplus of ₹1.35 lakh crore in November 2024. Furthermore, it will help banks with more money to lend and stimulate economic activity.

Crude oil prices at a six-month low

Crude oil prices have fallen nearly 16% from their recent highs to six-month lows, largely driven by changes in demand-supply dynamics.

Crude oil demand is expected to face heat in the US as economic indicators point towards a slowdown in the coming quarters. On the other hand, the supply of crude oil is expected to increase substantially as the OPEC+ oil-exporting nations have removed the 2.2 billion output cut and pledged to increase the supply.

A sharp fall in crude oil prices is expected to be sustained further due to high supply and lower demand metrics. It is also expected to benefit in bringing down inflation in India.

According to RBI, a 10% drop in crude oil prices brings a 0.3-0.4% drop in headline inflation. Secondly, the oil marketing companies, paints, dyes, and pigments, which use crude oil and its derivatives, could see margin expansion in coming quarters due to lower raw material costs.

Share prices of companies like BPCL, HPCL, Asian Paints, Berger Paints, JK Tyre, and more traded higher on Thursday with gains of up to 5%.